DECEDENT (IRD) DEDUCTION

The decedent or IRD deduction stands for Income in Respect of a Decedent deduction. It is an IRS term that refers to inherited income that is subject to federal income tax. It refers to income which was earned by the decedent during his or her lifetime, but the tax was not yet paid on the funds at the time of death. This income is subject to be being taxed as income for the beneficiary.

The IRD deduction comes into play when someone dies who has a pension plan or IRA and the estate is subject to the federal estate tax. The beneficiary of the estate must pay the income tax as he withdraws funds from the inherited account. The IRD is a deduction which will help offset the amount that has to be paid on the beneficiary's income tax.